Great Decisions 2013: Imperfect Union. From survival to existentialism

“Right now all of the European Union is in distress.” This opening statement sets the tone in the Great Decisions’ documentary, “Imperfect Union: The Eurozone in Crisis,” produced by Foreign Policy Association. The documentary revolves around the following questions: What would a failed euro mean for the EU? Or for its largest partner the U.S.? And can the EU become the United States of Europe? “Imperfect Union” demonstrates subtly in 26 minutes a problem shift resulting from the eurocrisis: from first being a question of survival to now becoming an existentialist crisis for the Union. Angela Merkel, German Chancellor, along with her French counterpart claimed that they were committed to saving the euro in order to protect the EU. Now that the politics have expressed their commitments to the protection of the euro and the European integration project, the long road of substantial reforms can begin. The documentary is composed of four chapters: first, the history of the Union; second, the origins of the crisis; third, the recovery; fourth, policy options.

Roots of the crisis

In the documentary, Nouriel Roubini claims that the origins of the European debt crisis are multiple: the main causes are that many countries had run large debt deficit with public debts at unsustainable levels; for some others EU member states, it was due to bad fiscal behaviors – too much spending and too little taxation like in Greece – and, in others countries of the eurozone like in Spain and Ireland, it was caused by a housing bubble. With the burst of the bubble, the recession engendered an increase of the deficit, leading to the bailout of banking institutions, which were then socialized precipitated a surge of public debts.

Ye Pingfan / Xinhua-Corbis

In the case of Greece, the debt was caused by over-borrowing at a cheap rate because of its status of eurozone member. On one side, Greece was spending beyond its ability to repay its debts, while on the other, international banks were continuing to lend to Greece despite knowing its difficulties in repaying its loans. With the worsening of the crisis, the rate of repayment changed and considerably increased for many eurozone countries making them unable to refinance their debts and ultimately making them insolvent.

On the broader picture, a crisis had to arise considering the lack of institutional structure supervising the Euro. With the 1986 Single European Act laying out the foundations of the Euro, no major harmonization of fiscal policies at the European level ever took place. As opposed to having one system, as it is the case in the U.S., Europe has many sub-systems making harmonization of fiscal policies difficult and making the system seriously opaque and of multilayers.

Germany was the only eurozone state to avoid the crisis as it had undergone in the 1990s a series of reforms holding wages relative to productivity, argued Alan Blinder of Princeton University, ultimately making German goods competitive on the world market. Germany was the only eurozone member to do so.

A stronger Union for a better recovery?

With the crisis worsening, eurozone members have tried to solve it by discussing on the eventuality of either a fiscal and/or banking union. However, the discussions have just been lengthy and complex. It needs time in order to develop a “roadmap for why kind of regulatory and constitutional changes that you would need to get to the point that you actually have greater integration of European economic governance” argued Ian Bremmer of Eurasia Group. The argument of time is central in order to understand the EU and the complexity of a multilevel governance system as the EU. Angela Merkel, German Chancellor, talked several years ago about the difficulty of ruling, governing and reforming in an era of short-term gains and

Libération, 27 October 2011 – Presseurop

immediacy. The EU is such a complex and slow moving institutional body, creating history each new day of its existence, that it cannot confront the reality of immediacy of global economic and financial forces. The documentary did not touch on the issue, but it appears that the EU Member States are willing to create a banking union revolving around the European Central Bank. The negotiations are still ongoing. The theme of the eurobond was addressed, but has been a real dilemma during European negotiation, as it would lead to the creation of new institutional framework in order to avoid that only one country, in this case Germany, pays the bill.

Matina Stevis of the Wall Street Journal raised important questions: “can we [the EU] become the United States of Europe? Can we have the more powerful members foot the bill and share risks?” One of the problems is that the eurozone is composed of 17 members accountable to their own constituencies. The domestic constrains are great on governments and limiting them to foster the integration process. According to Matina Stevis, the best-case scenario is the survival of the Euro but with fundamental change. The euro needs to be redesigned, as she calls it the “Euro 2.0.” However a euro 2.0 could not function without the creation of at EU 2.0.

Culture and politics?

Matina Stevis argues that we have seen a “return to second world war system of stereotypes and clichés and national hatred.” She goes further by claiming that the eurozone crisis has undone so much of the European project that may be its saddest legacy. The documentary spends a necessary amount of time discussing the human consequences of government policies of austerity causing massive civil unrest throughout Europe, and especially in peripheral member states. The flow of images of violence, tension, and despair is certainly haunting and put a human face to the consequences of the financial crisis oftentimes ignore. This side of the story has certainly been lost in translation in the U.S.

A collapse of the Euro?

A collapse of the Euro would take with it the U.S., China and global stability. A euro-breakup would undeniably affect global markets, still waiting for a solution of the Eurocrisis either as a smooth breakup or as a complex reform of the entire eurozone system and ultimately the EU. Ms. Stevis argues that one of the worst case scenarios would be the departure of one EU member states followed by others leading to a lost of confidence into the euro and ultimately in the European project.

The Telegraph

What can the U.S. do in order to avoid a EU breakup? The U.S. is interested in keeping the EU and the euro going considering their degree of complex interdependence. A euro breakup would affect American companies and American export-imports. Anne-Marie Slaughter claims that the U.S. needs to be more vocal in its investment and interests in the European project.

European Democracy?

This documentary is certainly one of the most comprehensives on the eurozone crisis. The lineup of political and economic experts from the private, public and academic worlds offers us an understanding of the problem at 360 degree. For students, faculty, and curious citizens, this documentary is a must-see in order to understand the fascinating topic of the eurocrisis. However, it felt that one issue was not directly tackled and certainly needs greater attention when reflecting on the eurocrisis: The impact of the eurozone crisis on the quality of European democracy and governance. Since the beginning of the crisis, countries like Greece and Italy have certainly felt under greater supervision by international market and institutions and their qualities of democracy have suffered from it. In Greece, the austerity measures have wiped out the welfare state leading to massive deregulations and privatizations. In Italy, the current Prime Minister, Mario Monti, despite his high degree of respectability, is unelected as he was appointed in order to straight up and rescue the Italian economy. One of the direct consequences of his appointment is the obvious demise of democracy. The signal and precedent sent around is that appointed technocrats unaccountable to citizens are the way to go in the future in order to readjust an economy. Part of the domestic anger against the EU and the Euro is directly fueled by the lack of representation of European citizens, the demos, at the highest spheres of the decision-making process. As developed in one of the latest books by Jürgen Habermas, “The Crisis of the European Union. A response,” – by the way one of the must read for this year – the EU is at a crossroad between either reforming into a transnational democracy or becoming a post-democratic executive federalism. The first road would put the demos at the heart of the EU governance, while the later would lead to the exclusion of the demos and the development of a closed doors EU governance process, already in place. Solving the eurocrisis is a necessity, but designing a functioning and more democratic EU is the long-term project forgotten in the process. The eurocrisis should be understood as the mid-life crisis of the EU raising one existential question: what is its role in the 21st? It may be time to launch the EU 2.0.

Kupchan’s article, “The democratic malaise: globalization and the threat to the West,” published by Foreign Affairs fits perfectly with the discussion on governability in an ever-more globalized arena. The gap between the demos, the institutions, and the nation states is increasing and making the process of governance even more complex.

Author

Maxime H.A. Larivé

Maxime Larivé holds a Ph.D. in International Relations and European Politics from the University of Miami (USA). He is currently working at the EU Center of Excellence at the University of Miami as a Research Associate. His research focus on the questions of the European Union, foreign policy analysis, security studies, and European security and defense policy. Maxime has published several articles in the Journal of European Security, Perceptions, and European Union Miami Analysis as well as World Politics Review.